Module 2--Precents and Related Issues Flashcards
What is a percent?
What is a percent?
* A tool for comparing one value to another
* A ratio, expressed in terms of 100
How is a percent calculated?
- Divide one value into another.
- Multiply this ratio by 100.
Why do we convert to percents?
- To have a common base from which we can make comparisons – a base of 100
An employee earning 50,000 contributes 4% (.04) of his or her salary to the voluntary savings plan1. What is the total contribution for the employee?
Answer:
50,000 × 4% = 2,000
How do you determine Percent Increase on the following:
Determine the difference between next year’s budget (81,106) and this year’s budget (73,327):
81,106 – 73,327 = 7,779
Divide the difference (7,779) by this year’s budget:
7,7779/73,327 = .1061 OR 10.6% increase
Applying Percents and Ratios to Examine Internal and External Equity Compensation practitioners use percents and ratios quite frequently. For example:
■ Individual compa-ratios
■ Department compa-ratios
■ Market indixes
■ Examining relationships – examining the relationships between:
* Internal equity (compa-ratios)
* External equity (market indices)
■ Percent difference
What is Individual Compa-Ratio?
Individual compa-ratio is a tool that helps compare an individual’s actual pay to the midpoint of the pay grade in which the individual’s position is placed.
Individual Compa-ratio = Salary/ Grade Midpoint
calculated by taking and individuals salary and dividing it by the midpoint.
Compa-Ratio for:
Employee salary: 36,000
* Midpoint: 40,000
* What is the individual compa-ratio?
.90
Department Compa-ratio
- Average of 90% and 110% is 100%
- However, total salaries / total midpoints is
146,000 / 140,000 = 104.3%
Treat each department as one entitity. Add up all the salaries with the department, add up all the midpoints and take the ratio relationship.
What is a Market Index?
- What is a market index?
Market index is an external measure. It is a ratio that compares internal salaries to the external market salary median, the 50th percentile. It is expressed in terms of a particular salary for a job, relative to the market salary for that same job.
“Market” refers to the data from salary surveys. Some companies use the market average, others use the median (50th percentile) or other measures of location.
Example:
Market = Salary 28,000
Index ——————— = __________ = .80 (thisthe market index)
Market 35,000
What is the difference between a compa-ratio and a market index?
A COMPA RATIO compares salaries to structure midpoints, yielding an INTERNAL index.
A MARKET INDEX compares salaries to market salaries, yielding an EXTERNAL index.
What is the STRUCTUE POLICY?
Whe you describe the relationship to Market to Midpoint. The Structure policy relates to the overall pay policy.
PERCENT DIFFERENCES and how should you manipulate?
The data that you have control over should always go in the denominator of the calculation.
Why is Approach 1 Preferable
Why Is Approach 1 Preferable?
■ Rule
* The data over which you have control should be the denominator of the calculation.
■ In the previous example, since you have control over the salary midpoint (whereas you do not have control over the market), using the salary midpoint is the preferred method.
What is Range Penetration?
Anoerh way to look at compa ratio
Alternative approach to Compa-ratio
Pay - Minimum
___________________________
Maximum - Minimum
What is the range penatration of the following:
0%
50%
100%
0% = At the minimum of the pay structure
50% = at the midpoint
100% = At the maximum
What is the purpose of a Range Penetration Chart?
This graph is a useful tool to help managers allocate their merit increase budget. For example, the manager may want to give a larger than average increase to the employees with higher ratings, but are low in the range. On the other hand, the manager may decide to give no increase or a small increase to employees who are higher in the range but received low ratings.
What is the method for Developling Salary Ranges
Developing Salary Ranges
■ Determine the midpoint.
■ Determine the range spread (percent difference between minimum and maximum).
■ Compute the range from the range spread and midpoint. (PAGE 45)